A Center for Responsible Lending analysis of two new reports on the payday lending industry from the California Department of Business Oversight (DBO) shows that payday lenders, who advertise their products as a one-time quick fix for consumers facing a cash crunch, generate 76% of their revenue from borrowers who take out 7 or more loans per year. The DBO's Annual report and Industry Survey come as the Consumer Financial Protection Bureau (CFPB) is considering new rules aimed at curtailing abuses in the payday lending industry. The Department of Defense also recently proposed new rules to further protect service members under the Military Lending Act, and Members of Congress have introduced a bill to cap interest rates on consumer credit products at 36%.
The report is being released one day before a gathering of consumer advocates in Los Angeles focused on the threat posed by predatory payday lenders. The event (Friday, October 10, 2014, 9:30 AM – 2:30 PM |LA County Federation of Labor, 2130 W. James M. Wood Blvd., Los Angeles, CA) will feature an address from House Financial Services Committee Ranking Member Rep. Maxine Waters.
Paul Leonard, California Director of the Center for Responsible Lending, issued the following statement on CRL's analysis of the DBO reports:
With annual interest rates at 459% and terms of two weeks, payday loans are designed to be financial quicksand. They sink borrowers into debt they cannot afford to repay so they have to take out loan after loan after loan each with a new $45 fee. The Department of Business Oversight's report provides conclusive evidence that predatory payday lenders are running debt trap scams, not providing a one-time fix for struggling California borrowers, as they misleadingly advertise. These loans cause lasting harm, destroying the financial futures not only of individuals, but also whole communities, and create a drag on the California economy. Almost 800,000 Californians were stuck in 7 or more payday loans last year sending money to payday lenders that would otherwise be spent in our cities and towns and small businesses.
The DBO's reports show policymakers at the federal and state level that the time to act is now. New rules are needed to end these scams and hold payday lenders to the same standards as other lenders. A 36% interest rate cap would protect consumers, as would requiring that payday lenders determine a borrower's ability to repay looking at both income and expenses, and setting strict limitations on the amount of time a borrower can be trapped in unaffordable payday loan debt. With this evidence in hand, the California state legislature, Congress and the CFPB should use all the tools at their disposal to end abuses in the payday lending industry.
For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Andrew High at Andrew.High@responsiblelending.org or 919-313-8533.
For more information, contact Andrew High at 919-313-8533 or firstname.lastname@example.org.